FTC Announces First Settlement Involving Privacy and the "Internet of Things"

by Wilson Sonsini Goodrich & Rosati
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In its latest data security case, the Federal Trade Commission (FTC) announced its first settlement of an action involving a household product with Internet connectivity.1 Consistent with its prior data security actions, the FTC charged TRENDnet with failing to implement reasonable security measures to prevent unauthorized access to sensitive information collected by TRENDnet from its customers. TRENDnet sells video-monitoring cameras that provide live video feeds over the Internet and made repeated statements in marketing materials that the cameras were secure. Despite these statements, hackers accessed the live video feeds of hundreds of customers revealing images of the interiors of people's homes. The settlement comes shortly after the FTC's announcement of a workshop to address "issues related to the ability of everyday devices to communicate with each other and with people, which is becoming more prevalent and is often referred to as the Internet of Things."2 The settlement reflects the FTC's continued focus on marketplace representations regarding data security together with its newer focus on data collection, storage, and use in the context of the Internet of Things.

Background

TRENDnet sells SecurView, an Internet-enabled video camera that allows users to watch live streams of video footage over the Internet or on an Internet-enabled device, such as a smart phone or tablet. SecurView is marketed for uses such as remote baby monitoring and home and small-office security. According to the FTC, the product name for the camera, as well as its marketing materials, represented to purchasers that the product is secure. For example, a sticker affixed to the cameras' packaging included an image with a lock icon and the word "security," and the packaging stated that the cameras could be used to "secure" or "protect" a user's home. However, the FTC charged that TRENDnet failed to provide reasonable security for its users' feeds. Among other things, TRENDnet allegedly:

  • transmitted user login credentials in clear, readable text over the Internet;
  • stored user login credentials in clear, readable text on users' mobile devices;
  • failed to implement a process to actively monitor security vulnerability reports from third parties; and
  • failed to employ reasonable and appropriate security in the design and testing of the software utilized in its cameras, such as security review and testing at key points, and implementation of reasonable training of employees responsible for testing, designing, and reviewing the security of the cameras and related software.

The FTC charged that combined, these failures subjected users of SecurView to a significant risk that their live feeds—which the FTC deemed to be users' "sensitive information"—would be subject to unauthorized access. In fact, hackers did gain unauthorized access to users' live feeds and posted links to live feeds of nearly 700 cameras. Although TRENDnet quickly made available new software to eliminate the vulnerability and sent emails to users encouraging them to install the updated software, the FTC commenced an investigation and charged TRENDnet with making false or misleading representations, and engaging in unfair or deceptive acts and practices in violation of Section 5(a) of the Federal Trade Commission Act.3

Settlement

The FTC's Settlement Agreement with TRENDnet includes provisions found in many prior FTC settlements involving data breach incidents and representations regarding security. In it, among other things, TRENDnet agrees to:

  • refrain from misrepresenting the security of its products;
  • implement a comprehensive and fully documented security program containing appropriate administrative, technical, and physical safeguards;
  • submit to an initial and biennial third-party assessments of its security program for 20 years;
  • notify affected customers about the security flaws and unauthorized access to their live feeds, as well as the availability of a software update to fix them; and
  • provide free technical support to customers for the next two years to assist them in updating or uninstalling the cameras.

Implications

The FTC's action against TRENDnet is significant for several reasons. It demonstrates that although the FTC is currently focused on issues involving Internet-enabled products, it will continue to apply the same framework regarding data security that it has in prior enforcement actions. For TRENDnet, improvement of access security, including wider adoption of encryption technologies in transit and at rest, as well as regular data security review and testing, might have reduced vulnerabilities and avoided FTC enforcement. Companies selling Internet-connected products may benefit from familiarizing themselves with FTC guidance on best practices in data security and incorporation of privacy by design principles into their processes.

The TRENDnet action also demonstrates the FTC's continued focus on statements expressly or implicitly representing the security of data provided to companies by consumers using their products and services.

The action further shows that the FTC will continue to act under its broad interpretation of its Section 5 authority to regulate unfair and deceptive trade practices in the context of information security, despite a pending challenge to that authority.4 The TRENDnet action makes clear that the FTC remains firm in its stance that it has jurisdiction over data security. Given the proliferation of federal and state security requirements including HIPAA (health privacy), GLBA (financial privacy), CPNI (telecom and location privacy), and others such as California and Massachusetts security regulations, data security will continue to be an increasingly important business and legal consideration for all enterprises.

1 http://www.ftc.gov/opa/2013/09/trendnet.shtm.

2 http://www.ftc.gov/opa/2013/06/internetthings.shtm.

3 15 U.S.C. § 45(a).

4 See FTC v. Wyndham Worldwide Corp., No. 2:13-cv-01887-ES-SCM (D.N.J. June 17, 2013) (Wyndham motion to dismiss Dkt. No. 91-1).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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